Financial Tornado Protection
Today’s times brings with it a pressure to increase income in order to maintain your lifestyle. It is an era of enthusiasm, confidence, and optimism. It is in such times of optimism that people take their savings out from under their mattresses and out of banks and invest it. They feel that there is simply nowhere else to put their money to work, which is why the stock market continues to edge upward to new record highs.
The booming stock market may look good on the surface, but it is most likely a mirage. Those of us in the financial planning trenches know that by historical measures, the market is extremely overvalued. Of course, you could also make a lot of money, especially with how well things are going in the current bullish stock market that continues to somewhat defy gravity.
Although the stock market has the reputation of being a risky investment, it does not appear that way in today’s environment. The reality is that investors are rushing into the stock market and not wanting to miss out on the Wall Street party, which appears to be attracting many party goers. As more people invest in the stock market, stock prices tend to rise.
The strong bull market (when prices are rising in the stock market) entice even more people to invest. The market gains experienced recently, with the Dow first topping 15,000 on its way to setting record highs, are giving investors a false sense of security. The stock market has once again become a place where everyday people truly believed that they can become rich. Confident in what seems a never-ending rise in prices, many speculators neglect to seriously consider the risk they were taking.
To many, the continual increase of stocks seems inevitable. The stock market goes up like an escalator, but goes down like an elevator. Devastation to you retirement by a financial tornado is imminently brewing. The financial crisis is an ugly situation that no sane person would want to experience because it comes with very drastic results that can reduce wealth and standard of living.
Chasing dreams is one thing, but being prudent is another. You don’t want to risk your entire investing capital on the stock market, in spite of any temptation to do so. This is when you have to fight against the greed that might be in you—the greed that’s in most of us—and it won’t be easy. You just need to be on top of things, and don’t let greed ravage your sensibility toward the stock market.
It’s not that the stock market is gaining value… it’s that our money is losing value. And so if you have a debased currency… a devalued currency, the price of everything goes up. Stocks are no exception.
The overall market (let’s say, the S&P 500) price is a function of supply and demand. Companies have enormous profit margins and are using their excess cash to buy back shares. This, of course, reduces shares outstanding. When supply goes down, price goes up. This is why the stock market right now is at all time highs.
In recent months, there have been four factors that have created a sweet spot for stocks. Indeed, stocks have rallied, and both the Dow and the S&P 500® Index have reached new all-time highs. But evidence has been mounting that three of these factors may be souring, and that instead of staging a long lasting break-out, the market may in fact be at a peak.
Taking the economy first, there is now clear evidence that the global economy is slowing down. Whether it is just a soft patch—like we’ve experienced in recent years—or something more serious remains to be seen, but the loss of momentum is unmistakable.
In terms of consumer sentiment, we continue to see the kind of optimism that one tends to see in a significant market advance. But when sentiment is one sided, it tells us that the risk is high, and that, if the fundamental story changes, there may be too many investors on the wrong side of the market. The caveat is that sentiment is merely an attribute of price, so one-sided sentiment on its own is not enough to turn the market.
Why are the S&P and Dow near their highs despite clear evidence that, both technically and fundamentally, things are not as good as they were a month ago? Short sighted investing isn’t wise for most people. They look at a 50% gain as fantastic. Then if they experience a 33.3% loss it doesn’t seem so bad compared to the 50% gain. But do they do the math? One hundred dollars which gains 50% becomes one hundred and fifty. One hundred and fifty dollars that looses 33.3% becomes one hundred dollars. That takes two years to get a zero return. Your sock will do that good.
A long time ago, before there was such things as financial companies; people had to look after their own assets. Typically, the most valuable things in the home, like jewelry, bonds, gold, silver, and cash, was kept in safes that were hidden in the house. However, there are a lot of ways now to protect your assets other than investing in a giant safe that weighs hundreds of pounds. Instead, a better strategy would be to reduce the money in people’s hands by implementing reasonable programs.
There are several ways to go about managing wealth. Like annuity policies that allow you to plan for a disaster, save on tax and increase the monetary value on the principle amount. They work as both protection and investment.
In the past many people had a choice of getting a safe way of making money, but not the chance of higher returns. Or they could try for those higher returns, but would also run a risk of losing a lot of their principal investment. However, with fixed indexed annuities you have a shot at both without putting your principal at any risk! Offering you a guarantee for the principal, but also a link to the market, however, even with those downturns in the market, you wouldn’t lose principal.
What if you took your earnings and invested them into a fixed indexed annuity? Just take the money you have made and move it into an investment that never goes down and will get market like returns. Why not invest your principal in an indexed annuity that never goes down and has no risk to your principal and then invest all of the earnings in the market? That way you keep your principal safe and still have market returns from your interest being reinvested into the market. This idea takes the risk of investing your nest egg in volatile investments out of the picture.
The indexed annuity is a great way to lock in your earnings and put the money you earn to work for you. It can work as a market growth overflow account. When the market goes down again at least your earnings will be protected and your principal is protected. Your income generating or growth generating asset is safe and secure. And when the market goes down the only money that will be affected is your earnings that you invested in the market. Always protect your income generating investments when possible.
These ideas use indexed annuities to make your retirement money safe and secure. Your investments will be protected from market downturns. When the market is up it is very easy to forget the down years but if you prepare now for the market going down again, it won’t be so bad next time. After the market goes down again is too late. Now is the time to make a few changes.
Winging it is not a Strategy
In a market where it is difficult enough to persuade people to make adequate provision for their income in retirement, expecting a significant number of customers to save or set aside funds for the possibility they will require long-term care is a huge leap of faith.
When the flood comes, you won’t be able to swim against the deluge. With any luck, you will see the warning signs. Short-term plans, emergency plans, long-term plans, ideal plan, back-up plan, flexible plans – while it’s not necessary to have one of each, it’s important to think of each aspect of the planning process and realize that there are stages to planning.
Taking into consideration the current global economic situation, we are living in a time of great financial insecurity. Winging it is not a strategy, it’s a virtual guarantee of retirement failure. A bit of planning and preparation can increase your odds of success.
At some point before they begin retirement, many pre-retirees will consider how much they can safely withdraw from their savings annually and not run out of money. In retirement income planning, the sequence of returns is very important. Meaning, poor returns early in retirement increase the odds of outliving your savings. This is so because when you begin retirement your portfolio is (hopefully) the largest it has ever been. Plus you are no longer making deposits, only withdrawals.
Medical needs tend to increase with age, making appropriate insurance coverage ever more important. Once, long-term care meant staying in a nursing home. Not anymore. Today, there are assisted living facilities, retirement communities with many levels of care, and devices that can help you stay in your home longer.
Many people assume that lengthy healthcare costs and services, such as skilled nursing care, long-term rehabilitation training at home or at a certified facility, are covered by their insurance. This is a misperception, and can result in individuals and families unnecessarily paying for long-term care expenses from their savings and assets. And, this doesn’t have to be the case.
Long-term care is expensive: The average cost for a year in a nursing home is $84,000, and it is not covered by Medicare. For those age 65 and over, Medicare covers many medical situations, but coverage for nursing home care is available only on a short-term basis and usually only following a hospital stay.
If you don’t have insurance and need care, you generally have to pay for it yourself, which can eat up your assets. But if that happens, there is a safety net: Every state’s Medicaid program pays for long-term care. While it’s best to not have to qualify for Medicaid, it’s there if you need it. It’s the only reliable long-term care insurance we have right now.
Medicaid is an alternative for nursing home and other long-term care costs but generally provides coverage only for those who have assets of $2,000 or less. Also, the patient must meet specific medical requirements for Medicaid to apply.
To qualify for Medicaid, some decide to transfer some or most of their assets to an irrevocable trust that can benefit family members also. Under federal law, the transfers must occur at least five years before the person is admitted to the nursing home.
When a trust is not appropriate, the couple or individual will likely be required to spend the majority of their own assets to reach the asset level needed for Medicaid coverage. Certain things, such as a home and automobile, are exempt from the calculation of what must be spent or transferred to the spouse who is not in the nursing home.
When facing nursing home costs, many find that their personal assets and resources will not be enough. Making sure that the spouse of the nursing home patient will have sufficient income and assets is also important. Other living arrangements are quite expensive and the cost for maintaining a spouse in such a living arrangement may rob a healthy spouse at home of an adequate standard of living. It’s quite possible the healthy spouse may end up with food stamps and subsidized housing where, before the need for a care facility, this may not have been the case.
You might consider buying long-term care insurance, but it doesn’t make sense for everyone. Policies are expensive, what they cover varies, and you’ll have to be able to keep up with premium payments for years or even decades.
Long-term care insurance is coverage designed to cover a patient’s expenses if an illness, disability or impairment suddenly interferes with their daily functions. The phrase “activities of daily living,” or ADL, refers to six major activities of everyday life: bathing, continence, dressing, eating, toileting, and walking.
LTCI can cover a long list of costs that include adult day care, home care services, assisted living facilities, respite care, hospice care, nursing homes, Alzheimer’s facilities, and home modification costs.
- Adult day care facilities are like activity centers for seniors that provide some supervision and a minimal level of care. Some employ social workers and medical personnel.
- Home care services include help with everyday tasks like cooking, cleaning and bathing.
- Assisted living facilities are for people who need help with ADLs but do not need nursing.
- Respite care provides private family caregivers with breaks so they can maintain their own lives, jobs and families while ensuring that their loved one receive the necessary care. Respite care varies from part of each day to several weeks at a time and can include home-based care, adult day care, and short term institutional care.
- Hospice care provides end of life care for people who are close to death and need of palliative care.
- Nursing homes provide both ADL assistance and medical care for residents.
- Specialized nursing homes have wings or units that provide care for diseases like Alzheimer’s; these sections are disease-specific and tailored to the needs of their residents.
- Home modification costs include costs to remodel bathrooms for wheelchair accessibility, for example.
Some states have what’s called “long-term care partnership programs.” If you buy an approved insurance policy through such a program, you can qualify for Medicaid when you run out of insurance coverage, instead of when you use up your assets.
An alternative to buying a long term care insurance policy may be one of the new hybrid annuity/long-term care policies. These are fixed annuity policies that are designed to provide long-term care benefits during your lifetime.
These policies generally require a large cash deposit from the policy holder, but they have characteristics very different from most annuity policies. These are not bought for a death benefit, the death benefit is merely incidental to the core purpose of providing long-term care benefits.
The initial deposit, buys three benefits. First is the promise by the insurer to pay long-term care benefits should you qualify. Second is some death benefit. The amount of the death benefit can be more than your initial deposit if you don’t use the long term care benefit.
The third benefit, one that people generally like the most, is the policy holders’ ability to surrender the policy at any time and receive a full refund of premiums paid. With interest rates at all time lows, this alternative has been extremely attractive to those reluctant to pay premiums on traditional long term care policies.
The Bottom Line – Long-term care expenses are an increasingly common reality for a world population who is living longer. For the millions of Americans who make too much to qualify for Medicaid coverage of LTC, but far too little to cover the high-cost of care themselves, a annuity with a long term care rider can be the best and only option to prepare oneself for the development of a life-disrupting disability.
Annuities are great transfer of risk products!
Retirement is not an age, but an ongoing stage of life. For baby boomers, retirement income planning is essential because the stakes are high. Some of them could live 30 years or more in retirement.
Most of us we are resistant to change. Baby boomers are starting to value guaranteed income in retirement over higher returns. A transition into the unknown can shake us out of our comfort zone and create uncertainty, which can lead to fear and stress. I have learned from working with many pre-retirees and retirees that the prospect of retirement can bring a similar sense of anticipation and joy. It can also cause stress and fear as people begin to prepare for the transition into the next phase of their life.
Boomers continue to face financial struggles in an era when they have the bulk of responsibility for planning and saving for retirement. Developing a holistic retirement strategy, saving and remaining engaged with your plan—these are the fundamental steps toward attaining financial security during one’s retirement years. Expectations of sources of income do not always match up with actual experience.
Think of your core portfolio as the foundation of your overall retirement plan. It’s built to sustain the ups and downs of stock market returns and create enough income to last the rest of your life. Making additional withdrawals from your core portfolio creates a chink in the armor of your long-term financial security.
Guaranteeing benefits in retirement takes a lot of cash. In the 21st century, most American businesses favor defined-contribution plans, such as a 401(k). You invest a defined amount each month, tax-free, and your retirement income depends on how well the investments do. This works out much cheaper for employers, but it’s riskier for employees. Bad investments or a market crash right before you retire can leave you with little time to rebuild your portfolio. Despite these challenges, it is possible for boomers to achieve their retirement goals.
Annuities are great transfer of risk products. With the 10-year Treasury currently at 2 percent or less, you are probably not going to see the planets align themselves to achieve double-digit returns. These products aren’t designed to beat an index. They’re designed more to compete with bonds, bank CDs and stock dividend accounts. Because with fixed index annuities with income riders, it’s not what you make, it’s what you keep.
Many of the people we work with have been leaders in business and in their communities. Oftentimes their identity is associated with what they do, who they’ve become in their career and how much they have accomplished. Transitioning into retirement makes them realize that they are not their job. They also realize that regardless of how much they have saved, most people are concerned it may not be enough, and now they need to redefine their identity and focus on what is truly the most important thing in their life.
Who’s best suited to an FIA? “They’re for people who are nearing or at retirement who are looking for principal protection — people who might be looking at other traditional fixed instruments but who want some equity market participation.
Fixed indexed annuities used with traditional retirement portfolio strategies improve the chances of creating sustainable income throughout retirement. When determining the best allocation among a range of investment choices to optimize chances for retirement planning success, specifically not running out of income and leaving assets behind. FIAs that include a income rider can offer retirees a predictable income they can never outlive.
Having that guaranteed floor underneath can afford investors the freedom to position other parts of their portfolios more toward longer-term growth as a potential hedge against inflation, so they have a better chance of their assets outlasting their retirement.
A FIA is an unregistered fixed product that relies on a specific index, usually the S&P 500 Index, to provide increased interest earning potential. Those potential earnings are tied to the overall movement of the stated index through interest-crediting strategies, or indexing methods.
The access to positive equity market movements isn’t unfettered, however. FIA investors must sacrifice some upside potential to gain downside protection from negative market movements. The sacrifice comes in the form of caps and participation rates that limit just how much the investor can participate in positive movements in the underlying equity index.
One of the most important aspects of deferred annuities in general is the fact that they are the only source of interest that is not considered for Social Security taxation. In other words, annuity interest, no matter how large, is NOT considered like all other sources of interest in the computation of provisional income and will not impact taxation on your Social Security payments.
No other income or interest paying sources, including municipal bonds, are exempt from this. Another important aspect of annuities in consideration of taxation is the way they are treated as an asset. Once an annuity is annuitized (in payout), it is no longer considered a lump-sum asset; it has become a stream of income, thus enhancing inheritance tax and asset based consequences.
FIAs grow at the greater of a guaranteed minimum rate or interest that is linked to the return of a specified market index. They include the potential for some market-linked interest credits with no risk of loss of principal because of market downturns and volatility.
Ultimately, once you have clarity of purpose and the confidence to know the numbers are going to work, then my hope is you will experience freedom. Freedom to do the things you want to do, to be with the people that matter the most to you, to be free from worry, fear and greed; and ultimately freedom to have an impact in this world so that one day you might be greeted with “well done good and faithful servant.”
Asset and Income Protection
Hitting that century mark or even living well into our nineties is hard to fathom – so much so, that a lot of us are guilty of just ignoring the “what ifs” of making it that far in life. The facts show that we ARE living longer and longer. This is great news but living longer may create some pretty severe financial challenges.
According to the Government Accountability Office, a husband and wife both aged 65 have approximately a 47% chance that at least one of them will live to his or her 90th birthday and a 20% chance of living to his or her 95th birthday.
As life expectancy continues to climb, the fear of outliving one’s assets has become top-of-mind for most Americans. Today, it is becoming more important than ever to put retirement strategies in place that guarantee lifetime income.
You need to put an income strategy in place that helps you to maintain your standard of living throughout your retirement years with income you can’t outlive. Planning is important, in order to assist you in eliminating a potentially devastating financial disaster. You want to live out the golden years of your retirement as stress free as possible. So make sure you plan for your future long term health care needs as well as your income needs!
With long-term care costing as much as $250 a day, it doesn’t take long to completely deplete a lifetime of savings—even if you’re “lucky” enough to only need it for a relatively short period of time.
With Nursing home Cost’s running $4,000 to $8,000 a month and outpacing inflation, it is a small wonder that most seniors cannot afford the Long term Care insurance premiums. If you consider the average annual cost of elder care, you may rethink the (much) smaller annual premium involved in owning a LTC policy.
* The average annual cost of Nursing Home care – $83,179
* The average annual cost of Assisted Living – $44,345
* The average annual cost of Home Care – $38,317
These costs are in TODAY’s dollars. With the average stay in a nursing home coming in at around 3 years, the average cost per person is around $241,219. This theoretically could become the greatest financial risk of your life.
The wealthy can be reasonably sure their savings will be enough to pay directly for long-term care, whatever its duration. And despite concerns about quality, Medicaid is there for the poor.
But what about consumers with midlevel savings—in other words, most people? These consumers need long-term-care insurance the most. They tend to have too little savings to pay for even a couple of years of care without impoverishing themselves and their families, and too much to qualify for Medicaid.
It’s unforeseeable what your nursing home and assisted living costs may be…we’d all like to hope that this is something we’ll never face. But, the facts aren’t on our side. Planning for it now, rather than later, is simply a wise thing to do.
The industry touts scary statistics about the probability of ending life in a nursing home. It’s not uncommon to see ads claiming “70% of all seniors will go into a nursing home,” or “the average stay is two and a half years.”
It may be more useful to learn that 67% to 70% of seniors who do go into a nursing home are discharged within 90 days, and that after two years, less than 6% of those admitted will still be there. Actually, out of 40 million American seniors alive today, approximately 1.5 million currently live in nursing homes, about 3.7%.
Another important point: Most long-term-care policies don’t pay anything until the person has been in a nursing home for more than 90 days. If more than two-thirds of those going into nursing homes leave before 90 days are up, it is unlikely that most consumers will receive any benefits at all.
For those with little wealth, a policy will never be suitable. They will be covered by the long-term care provided by Medicaid. For individuals with incomes of at least $250,000 a year and substantial savings, the smarter move might be to either self-insure or use their resources to pay for high-level in-home health care.
For mid-wealth individuals, the answer isn’t so clear. The average annual premiums for policies sold to seniors run around $3,500 per year. But few—if any—policies pay 100% of the daily private pay rate, currently about $250 per day. Policies typically pay $150 a day. So, even a resident with a policy will have to dig into savings to pay the difference.
But instead of buying a policy and paying premiums, the consumer could set aside savings for long-term care. At $3,500 a year, in 20 years he or she could have $70,000 plus interest. In the statistical unlikelihood they end up in a nursing home, they could use these savings to pay the bills. The best option instead of buying a long term care policy and paying premiums, the consumer could set aside savings in a long term care annuity. If you don’t use it, you don’t lose it.
The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.
Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted.
Being financially ready for the possibility that you will require long-term care is an important part of retirement planning. But too many people are still preparing merely by hoping for the best. Buying insurance is basically gambling. You calculate the costs, risks and benefits—and hope that you come out ahead.
Fixed index annuities have answered the retirement income needs for individuals facing a wide variety of retirement planning scenarios. By providing exposure to market-based gains and eliminating losses, FIAs have proven to be an excellent alternative to the stock market.
The past few years have taken a brutal toll on your investment portfolio and your sanity. You are tired of the stress that comes with the ups and downs of the stock market. You’re tired of seeing your hard-earned retirement savings lose value with big market drops.
You need more stability. However, you’re looking for a bit more earning potential than what today’s bond options or Certificates of Deposit (CDs) can provide you. You are looking for a safer alternative to the stock market, one that provides principal protection with some exposure to market upside.
Annuities come in all shapes and sizes, and “lifetime income” is just part of the story. If you are a Senior concerned about the High Cost of Long term Care but really cannot afford the High cost of Long Term Care Insurance Premiums, then a Hybrid Annuities with a Long Term Care Rider may just be the solution you seek.
These innovative products can meet consumer demands and provide more guarantees by combining retirement benefits along with traditional long term care insurance with the many advantages of annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan
